Synthetic ETFs

Hi

In a recent response to a question on ETFs Paul mentioned a “synthetic ETF”. Can you explain what this is, and how its different from an ETF tracking say the ASX 200?

Many Thanks

 

A: Thanks for the question.

Most Exchange Traded Funds (ETFs) invest in the underlying stocks that make up an index, or the underlying commodity. A synthetic ETF invests in a derivative of the index or commodity. For example, an ETF that tracks the gold price -some ETFs will actually own the physical gold, while a synthetic ETF may own gold futures.

Most ETFs listed on the ASX are investing in real assets.

regards

 


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